The Underused Housing Tax Act (UHT) is an annual federal tax on the ownership of vacant or underused housing in Canada. The purpose of the UHT is to target the unproductive use of domestic housing and ensure that residential properties in Canada are not being used as speculative financial assets. It is the first federal law intended to deter foreign ownership of vacant real estate in Canada. Some Canadian municipalities, including Toronto, have enacted similar taxes.
The UHT generally applies to foreign national owners of housing in Canada, but in some situations, it may also apply to Canadian owners in the following circumstances:
• Canadian corporations and trusts. The UHT applies to Canadian corporations and trusts that are not majority-owned by Canadian citizens or permanent residents.
• Canadian partnerships. The UHT applies to Canadian partnerships in which more than 50% of the fair market value of all interests in the partnership are held by partners that are foreign nationals, foreign corporations, or taxable trustees.
• Canadian owners with foreign use. The UHT applies to Canadian owners if the housing is used by a foreign owner or a non-arms-length person more than it is used by the Canadian owner.
Impact of the UHT on Canadian and Foreign Real Estate Investors
• The UHT is calculated as 1% of the taxable value of the property as of December 31 of the previous year.
• You can use either fair market value or a property's assessed value to calculate your UHT
• Affected owners with multiple residential properties must file separate UHT returns for each property.
• Even if an affected owner meets an exception and isn't required to pay the UHT, they must still file a return to declare the exemption.
• If the UHT applies, affected owners will be required to remit payment on April 30.
Impact on Canadians Who Own Vacation Properties & Other "Underused" Properties
Vacation homes, such as cottages, located in an eligible area of Canada and utilized for at least 28 days in a calendar year by you or your spouse or common-law partner may qualify for an exemption.
You may also be eligible for an exemption if the property is your principal residence, the primary residence of your spouse or common-law partner, or the primary residence of your kid who attends a designated learning institution for at least 180 days in a calendar year.
Other qualifying occupancies include periods of at least one month in a calendar year when one of the following qualified occupiers continually occupies the property:
• Individuals having a signed contract who deal with you and your spouse or common-law partner at arm's length.
• Individuals with a signed contract who do not deal with you or your spouse or common-law partner at arm's length but pay a fair rent for the property.
• You or your spouse or common-law partner who has a Canadian work permit, or your parent or kid who is a Canadian citizen or permanent resident.
However, it's crucial to note that even if an affected owner meets an exception and isn't required to pay the UHT, the owner must still file a return to declare the exemption. It's always a good idea to consult with a tax professional about your specific circumstances.
